Using IT To Grow

Dec. 21, 2004
Information technology evolves from a facilitator of growth into a driver of growth.

More than a decade ago, companies such as American Airlines, Federal Express, and Banc One invested heavily in information technology so that they could do things the other guys couldn't. The idea was that smart use of computers and software could yield a strategic advantage. In recent years, though, IT has developed a sort of "either-or" reputation -- it's viewed either as an enabler of efficiencies or as a black hole of hidden costs and crippling complexity. Now IT may be poised to return to its glory days. Even as companies spend millions to fix the millennium-bug problem (reinforcing the view of technology as an expensive and troublesome necessity), a number of forward-thinking firms in all industries are seeing ways to employ IT in ways that help them reach new customers, develop products more quickly, or otherwise grow their businesses. Boosted largely by the capabilities of the Internet, these firms are looking to savvy applications of technology, not just to facilitate expansion, but also to inspire and drive it. The focus is shifting from IT as an internal system of automation to an external means of customer communication and market penetration. This holiday season, for example, more people than ever before will strap on new pairs of Rollerblade Inc. in-line skates. The company's business is extremely dependent on just two seasons: the Christmas holiday and springtime. Order volumes during these two periods can be 20 or more times higher than at other times. And each season finds the company introducing a number of new models; some will be hits, others won't. The products are made in Asia and Europe, so transit times must be accounted for. All of which means that the company can get burned if it's not in close touch with what customers want. "We've integrated all of our IT functions," says Alan Sussman, vice president of information technology at the Minneapolis-based company, "so that our field sales force can enter orders on the road and that information can get passed through headquarters and right out to the factories." The beauty of that pipeline, he says, is that some models can be canceled before production begins if store owners aren't enthusiastic. If a new model looks like a hit, capacity can be ramped up before the first inventories begin arriving in stores. "This has helped us tremendously," Sussman says. "We've driven a lot more of the right product into the market in time to take advantage of the peak buying seasons." The company uses a home-grown forecasting application to capture and analyze orders from sporting goods stores; that can influence production schedules or even prompt a decision to further design a new product before initiating manufacturing. For the large mass-merchants that sell Rollerblades, a direct connection into the manufacturer's J.D. Edwards & Co. enterprise-resource-planning (ERP) system is common. This lets Rollerblade track replenishment orders against forecasts and adjust accordingly. "There's nothing magical about it," Sussman says. "It's less a case of great technology than simply seeing how common pieces can be put together in a way that lets you achieve your objectives." Rollerblade moved to a fully integrated suite of software products from J.D. Edwards in 1996, just as its new line of Extend skates was being introduced. "If we had gotten the software in just a little sooner it might have helped us," Sussman says, "because that product took off and our initial production runs were too conservative. We had to resort to air freighting them from the factories, which couldn't keep up with demand." The Extend skates are aimed at kids, and make Rollerblades an appealing gift because they can be adjusted to fit kids as they grow, making it less critical for the gift buyer to know the recipient's shoe size. "It has remained a huge seller for us," Sussman says. "Now that our IT is integrated, it makes no difference whether we're in a huge-volume mode or an off-season period. We handle the [demand] spikes with no problem at all." The manufacturer of a far different mode of transportation also has found creative ways to tap IT to help grow its business. Newport News Shipbuilding Inc., Newport News, Va., builds aircraft carriers and submarines for the U.S. Navy, a customer that has recently redefined the rules of competition. In the past the Navy awarded contracts and accepted the finished product, with virtually no involvement between those two steps. Now the Navy wants to be an active partner in the development of ships. It also wants its suppliers to produce the vessels in partnerships, to take advantage of various firms' expertise, and to reduce costs. "When we decided that we wanted to get back into submarine construction, a business we left years ago," says Steve Hassell, the company's CIO, "we had to rethink and redesign every facet of our IT systems." The new climate fostered by the Navy, Hassell says, requires a sophisticated use of IT from stem to stern. "If you had told us five years ago that we'd be building Virginia-class [a new generation of attack submarines] submarines in a 50-50 sharing arrangement with our principle competitor, we'd have laughed you out of the room," Hassell says. "But here we are, building four of them, a contract that's important for us." Hassell says that Newport News isn't overhauling its IT operations just to meet Navy requirements, but because "we saw that to compete in the modern market we had to move away from a system in which information was tightly held to one in which it can be shared easily. . . . "Oftentimes the ability to grow is directly tied to your ability to respond to change," Hassell observes. "For example, in 1997 we sold our commercial shipbuilding business and reentered the submarine business, two major moves that we felt were critical for our success. We needed to make better use of IT, everything from PCs up to sophisticated integrated software packages like ERP, to achieve that flexibility. The systems we had just weren't going to allow us to do what we needed to do." Emphasis on the Internet is a common theme at companies that are using IT to aggressively expand their businesses. That's the case at Standard & Poor's, the New York investment-research company, which is using the Internet to tap a whole new set of customers: the public. With a blue-chip reputation among institutional investors for its bond and stock ratings and related services such as its mutual-fund evaluation, S&P, a division of McGraw-Hill Cos. Inc., still had no means to deliver investment information to the vast consumer market, which clearly offered an untapped source of growth for the firm. "We wanted to provide investment advice directly to consumers," says John Fitzgerald, president of the company's consumer-markets division, "and now the Internet makes that possible." For a small monthly fee anyone can access, S&P's Web site for individual investors. The site provides access to S&P's vast databases of information on more than 40,000 mutual funds, reams of data on individual companies, buy/sell/hold recommendations on the 1,200 most commonly traded stocks, and more. "The timing is right," Fitzgerald says, "because people are saving for their own retirements, the demographics are right, and there is a large audience that needs information." S&P had been looking at this market for years, Fitzgerald says, but couldn't figure out how to distribute its products economically. "Now the Internet solves that," he says. "We can establish a one-to-one relationship with each client and provide the full depth and breadth of our research in a very cost-effective way." Many other companies are expanding into new markets by utilizing the powers of the Internet. By next year Boise Cascade Corp.'s office-products division believes that e-commerce will account for 10% of its sales, including a push into an entirely new market segment. Not bad for a project that was begun just last year, and whose aim was really to do business more efficiently, not necessarily to expand. Boise's I-97 project began as a business-to-business Web site for major corporate customers, says Laura Longcore, the company's senior manager for e-commerce, based in Itasca, Ill. "It was initially designed as a way to give existing customers a more convenient and cost-effective way to order from us," she says. "But before we knew it, we were winning new customers because they saw a demo and went with us expressly because we had this capability." The Web site gives customers an easy way to look at Boise's catalog and place orders. Software is modified for specific customers so that each sees only the products that company has decided to purchase from Boise. Each company sees the prices that have been specially negotiated for and by that company. The system debuted in January 1997, and a year later still accounted for less than 1% of the division's business. But this year that figure rose to 6%, and Longcore believes that reaching the 10% goal set for 1999 should not be a problem. "We're seeing 40% growth month-to-month," she says, "and we now have 3,000 companies using it." That figure will grow dramatically next year as Boise modifies the system to serve much smaller clients, potentially even individuals. "We will require some sort of minimum order," Longcore says, "but the market known as small-office/home-office has a lot of potential." The beauty of the Web is that it can reach the small clients that Boise's 1,200 field sales agents can't service. "Our cost is so efficient that we can make money on even very small orders when they're placed over the Web," she says. Longcore works with a group of about 15 people to develop the software and otherwise tend to the e-commerce site. She says that another goal for 1999 is to begin integrating this commerce functionality with various aspects of supply-chain communication. Reaching out to new customers, particularly smaller ones, is a major benefit of much e-commerce activity. This "low-cost-to-serve" model is driving a lot of e-commerce strategy, says Charles Callahan, a vice president in the high-tech-industry practice of consulting firm Booz Allen & Hamilton Inc. "We just conducted a study of several hundred companies around the globe," he says, "and more than 50% of CEOs and senior-level executives said they expect the Internet to have an impact now or soon on overall business strategy." Observers point out that not only do Internet-based technologies facilitate the overt expansion of business, they also are one of the best means for achieving what has emerged recently as a major goal for most businesses: providing better customer service. "Look at British Airways' [BA] Caress system," says James Cash, the James E. Robison professor of business administration at the Harvard Business School. "They found that the intent to repurchase airline tickets drops by 60% if you don't respond to customer complaints quickly. So they now have a system to capture and track these complaints that lets them respond in four days or less. And they capture lots of customer data apart from the complaint, all of which boosts retention levels, and that clearly increases business." Caress (Customer Analysis & Retention System) has been designed to clear up a bureaucratic nightmare, a 13-step complaint resolution process that didn't involve responding to the customer until step 10. In fact, at one point BA spent more on lawyers' fees than it did in compensation to its treasured Executive Club customers. Now customer-complaint staff can look at two computer screens, one displaying the customer's letter (or e-mail) of complaint, the other providing access to all the billing, schedule, and other information that might be useful in drafting a quick response. As a result, a 12-week backlog of complaints was eliminated, and about 80% of those who complain say they'll fly BA again. In fact, the complaint department has been rechristened the "customer-retention" unit; backed with the proper technology, the name change is proving far more than merely cosmetic.

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